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Buy Setup

After having identified the strong trending markets, the next step becomes how to take trade it.  This step can actually be fairly simple as one can simply look for what if referred to an “ABC” or “123″ move.  The key is to only look for sells in a downtrend or buys in an uptrend.  Remember, we are looking for the trend to continue rather than attempt to predict the end.  Here is an example:

Here is the daily chart of the USD/CHF we saw in the previous lesson.  The trend is down, so we are looking for a sell only.  The move from A to B is the trending move while the move from B to C is the corrective move against the trend.  It is that move against the trend that helps identify the trade setup.  Many of the more successful traders classify themselves as “breakout traders”.  Meaning they simply sell on a move down through point B after having reversed at point C.  Waiting for the market to move down through the previous low does serve as some sort of confirmation that the down trend is still intact.  It also leads to consistent entries since there no need to guess where point B is located.  Once the market moves down through point B, we also know where point C is located.  That will take on added importance in the next lesson. 

Buy Setups

Let’s take a look at a couple of buy setups using the ABC approach.

Here is the hourly chart of the CHF/JPY in the previous lesson.  The trend is up, so we want to look for buys only.  We can see that trending move from A to be B and the corrective move against the trend from B to C.  The buy is the move up through point B on the breakout to a new high.

This is the 4-hour NZD/CAD from the previous lesson.  We can see that the trend is up, so we are only looking for buying opportunities.  We can also note the trending move from A to B and the corrective move against the trend from B to C.  The buy is the move up through point B on the breakout.  Notice how the market did not move straight up after buying.  We will cover how to handle this type of situation in the next lesson. 

Sell Setups

Let’s take a look at another couple of sell setups using the ABC approach. 

Here is the 3-hour EUR/CHF chart from the previous lesson.  The trend is down, so we only look for sells.  We can see the move from A to B as the trending move.  The move from B to C is the corrective move against the trend.  We would sell on a move down through point B on the breakout.

This is the 2-hour EUR/NZD chart from the previous lesson.  We can see that the trend is down, so we are only looking for sells.  The move from A to B is the trending move.  The move from B to C is the corrective move against the trend.  We sell on a move down through point B on the breakout.

The key to these trade setups is finding the right pairs to trade.  This of course, depends on the strength of the trend.  Be picky about the trends you choose as there are always plenty of options. 

Now that we have identified how to get into a trade, let’s go over how to get out of the trade.

Next: Exits »